Singapore Medical Group - UOB Kay Hian 2019-05-10: 1Q19 Earnings Flat; Charting The Path For Clinical Growth

SINGAPORE MEDICAL GROUP LTD (SGX:5OT) | SGinvestors.io SINGAPORE MEDICAL GROUP LTD (SGX:5OT)

Singapore Medical Group - 1Q19: Earnings Flat; Charting The Path For Clinical Growth

  • SINGAPORE MEDICAL GROUP (SGX:5OT)’s 1Q19 net profit was flat y-o-y, coming in at S$3.3m, while revenue increased 12.3% y-o-y due to its SW1 acquisition. Earnings were largely in line with expectations.
  • Singapore Medical Group is looking towards the addition of new specialists, which will likely impact near-term margins, though increased scale can aid in operational efficiency in the medium term.
  • Maintain BUY with a revised PE-based target price of S$0.62 (previously: S$0.65).



SMG's 1Q19 RESULTS


1Q19 earnings flat; results in line.

  • SINGAPORE MEDICAL GROUP (SGX:5OT) reported a 1Q19 net profit of S$3.3m, Earnings were flat y-o-y and came in largely within expectations, making up 23.3% of our forecast. The group’s revenue increased 12.3% y-o-y to S$21.6m for 1Q19, driven primarily by the SW1 Clinic acquisition.

Aesthetics segment up, but health segment was kept constant.

  • While the aesthetics segment received a boost, revenue from the health segment remained fairly constant as the increase in clinic revenue was offset by the closure of an orthopaedic clinic with Singapore Medical Group restructuring its non-core business to avoid competition with the imaging business.

Gross margin unchanged but administrative expense rises.

  • Gross margin remained unchanged at 46.4%. Administrative expenses increased 15.6% y-o-y to S$4.9m due to an increase in staff costs as the group grew its network of clinics.


STOCK IMPACT


Charting the path for organic growth.

  • Singapore Medical Group officially launched SW1 Vietnam in Apr 19 with the opening of a new 4,000sf aesthetics centre in Ho Chi Minh City. This extends upon its SW1 clinics in OUE Downtown Gallery and Paragon.
  • Singapore Medical Group also opened a new pediatrics clinic and a new O&G clinic in Punggol in Jan 19. It also added a new breast care clinic in May 19.

Short-term margin pressures.

  • Singapore Medical Group’s growth is focused upon the extension of its network of clinics. The group plans to hire 2-3 more O&G specialists and 2-3 more pediatricians. Furthermore, Singapore Medical Group plans to hire an additional radiologist and other specialists in key complementary verticals.
  • Overall, the group targets to onboard an additional ten to twelve specialists in 2019. While margin pressures will come from the gestation costs of new clinics and hiring costs of additional specialists, the increased scale can aid in enhancing its key specialist verticals.

Strategic partnership still in play.

  • With the increased stake holding by CHA Healthcare, Singapore Medical Group will also continue to eye inorganic growth opportunities and new avenues for growth in key Asian markets.


EARNINGS REVISION/RISK


Slight cuts to earnings forecasts.

  • We make slight cuts to our 2019-20 earnings estimates by up to 5% on increased gestation costs.


VALUATION/RECOMMENDATION

  • Maintain BUY with a revised PE-based target price of S$0.62 (previously S$0.65), pegged to peers’ average 2019F PE of 23x.
  • Singapore Medical Group continues to trade at a lower 16.6x 2019F PE among its peers. The group’s medium-term outlook still looks promising with the increase in scale garnered from a larger base of specialists.


SHARE PRICE CATALYST

  • Earnings-accretive M&As.
  • Stronger traction in high-growth markets such as Vietnam.





Lucas Teng UOB Kay Hian Research | https://research.uobkayhian.com/ 2019-05-10
SGX Stock Analyst Report BUY MAINTAIN BUY 0.62 DOWN 0.650



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